Reference Guide
Plain-English definitions of 64 key terms merchants need to understand when comparing payment processors and evaluating pricing.
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An electronic bank-to-bank payment transfer processed through the Automated Clearing House network. ACH payments are commonly used for direct deposits, bill payments, and B2B invoicing. ACH fees are typically much lower than card processing fees, but ACH transfers are not instant — standard ACH takes 1–3 business days, while same-day ACH is faster but often carries additional fees.
Related: Settlement, Recurring Billing
The financial institution that holds the merchant's account and processes credit and debit card transactions on the merchant's behalf. Also called a merchant acquirer. The acquiring bank takes on financial risk by sponsoring the merchant for card acceptance. Payment processors may act as their own acquirer or partner with an acquiring bank.
Related: Merchant Account, Payment Processor, Issuing Bank
Fees charged by card networks — Visa, Mastercard, Discover, and American Express — on every card transaction. Also called card brand fees or network fees. Assessment fees are separate from interchange (which goes to the issuing bank) and are typically a small percentage per transaction, often under 0.15%. Like interchange, assessment fees are non-negotiable and set by the card networks.
Related: Interchange, Interchange Plus Pricing
The process of submitting all authorized transactions from a business day as a group for final payment processing. Most processors settle batches daily — either automatically at a set time or when triggered manually by the merchant. Settlement initiates the transfer of funds from the card-issuing bank through the card network to the merchant account.
Related: Authorization, Settlement, Next-Day Funding
A short-term financing option that allows customers to split a purchase into installments — often interest-free for shorter terms. BNPL providers (Afterpay, Klarna, Affirm, and others) pay the merchant the full purchase amount upfront and collect installment payments directly from the customer. Merchants pay a fee per transaction to the BNPL provider, which is typically higher than standard card processing fees.
Related: Recurring Billing, Payment Gateway
A transaction where the physical card is not present at the point of sale — most commonly online payments, phone orders, and mail orders. CNP transactions carry higher fraud risk than card-present transactions, which typically results in higher interchange rates and more stringent fraud screening requirements.
Related: Chargeback, Interchange, Payment Gateway
A transaction where the physical card is present at the point of sale and processed through a terminal via swipe, chip, or tap. Card-present transactions carry lower interchange rates than card-not-present transactions because the physical card reduces the risk of fraud.
Related: Interchange, POS System, EMV
A pricing approach where merchants offer a lower price to customers who pay with cash, and a standard (slightly higher) price for card payments — effectively passing card processing costs to card-paying customers. Cash discount programs must comply with card network rules and applicable state laws, which vary. Different from surcharging; verify compliance requirements before implementing.
Related: Surcharging, Interchange
A forced reversal of a card transaction initiated by the cardholder's issuing bank. Chargebacks occur when a customer disputes a charge as fraudulent, unauthorized, or for non-delivery of goods or services. Processors charge merchants a fee per chargeback, and excessive chargeback rates can trigger account reviews, reserves, or termination.
Related: Reserve, Underwriting, Merchant Account
The maximum acceptable chargeback ratio set by card networks before a merchant faces monitoring programs or penalties. Visa and Mastercard both operate chargeback monitoring programs that trigger at defined thresholds (commonly 1% of transactions or higher). Merchants exceeding thresholds may face increased fees, mandatory remediation plans, or account termination.
Related: Chargeback, Reserve, Underwriting
A payment made by tapping a card, smartphone, or wearable device near a contactless-enabled terminal. Uses NFC (Near Field Communication) technology. Common examples include Apple Pay, Google Pay, Samsung Pay, and contactless credit and debit cards. Contactless transactions are card-present transactions and qualify for card-present interchange rates.
Related: Card Present, EMV, POS System
When an authorization request is rejected by the issuing bank or processor. Soft declines are temporary (such as insufficient funds or a velocity limit) and may succeed if retried. Hard declines are permanent (such as a stolen or closed card) and should not be retried. Decline rates vary by business type, transaction method, and customer card mix.
Related: Authorization, Issuing Bank
The total percentage fee a merchant pays per transaction to the processor, before per-transaction (flat) fees are added. The term 'discount rate' is older industry terminology still used in some contracts and statements to describe the percentage charged on each transaction. It is distinct from the per-transaction flat fee, which is added on top of the discount rate.
Related: Effective Rate, Interchange, Flat Rate Pricing
The total cost of card processing expressed as a percentage of total processing volume, calculated by dividing total fees paid by total volume processed. Effective rate accounts for all fee types — processing rate, per-transaction fees, monthly fees, and other charges — and is the most accurate metric for comparing total processing costs across different pricing models.
Related: Flat Rate Pricing, Interchange Plus Pricing, Membership Pricing
The global standard for credit and debit card payments using embedded microchips, named for Europay, Mastercard, and Visa. EMV chip transactions are more secure than magnetic stripe swipes because the chip generates a unique transaction code for each payment, making it far harder to counterfeit. Merchants using EMV-compliant terminals have reduced fraud liability compared to merchants using swipe-only terminals.
Related: Card Present, POS System, Contactless Payment (NFC / Tap to Pay)
A pricing model where merchants pay a single fixed percentage and per-transaction fee on every card transaction, regardless of card type. Common examples are 2.6% + $0.10 for in-person and 2.9% + $0.30 for online. Flat-rate pricing offers simplicity and predictability but may result in a higher effective rate than interchange-plus pricing for businesses with a favorable card mix.
Related: Interchange Plus Pricing, Membership Pricing, Effective Rate
A business category that payment processors consider at elevated risk of chargebacks, fraud, or regulatory issues. High-risk categories may include certain travel services, subscription businesses, nutraceuticals, adult content, firearms-related businesses, and others. High-risk merchants may face higher processing fees, reserve requirements, or a narrower range of available processors.
Related: Reserve, Underwriting, Chargeback
A checkout or payment form hosted on the payment processor's servers, to which the customer is redirected to enter card details. Because card data never touches the merchant's own servers, a hosted payment page reduces the merchant's PCI DSS compliance scope significantly. The trade-off is reduced control over the checkout experience and potential impact on conversion rates.
Related: Payment Gateway, PCI DSS, Tokenization
A fee paid by the merchant's acquiring bank to the cardholder's issuing bank on each card transaction. Interchange rates are set by card networks (Visa, Mastercard, etc.) and vary based on card type, transaction method, and merchant category. Interchange is the largest component of total processing cost and is non-negotiable — it is the same for all processors handling the same transaction type.
Related: Interchange Plus Pricing, Effective Rate, MCC
A pricing model where merchants pay the actual interchange rate for each transaction plus a fixed processor markup. For example: interchange + 0.30% + $0.10 per transaction. This model is more transparent than flat-rate because the interchange component is visible and the processor markup is clearly separated. Interchange-plus often produces a lower effective rate for businesses with moderate to high processing volume.
Related: Interchange, Flat Rate Pricing, Effective Rate
A company authorized by a card network or acquiring bank to sell and manage merchant accounts on behalf of a processor or bank. ISOs (also called MSPs — Member Service Providers) often resell processing services from larger acquirers under their own brand. Many regional and local merchant services companies are ISOs.
Related: Merchant Account, Acquirer / Acquiring Bank, Underwriting
The financial institution that issues credit or debit cards to consumers and businesses. When a card transaction is submitted for authorization, the issuing bank approves or declines the request and places a hold on the cardholder's funds. The issuing bank receives interchange fees on each transaction as compensation for credit risk and card program costs.
Related: Interchange, Authorization, Acquirer / Acquiring Bank
A transaction where the card number is manually typed into a terminal, virtual terminal, or payment system rather than swiped, dipped, or tapped. Keyed-in transactions are treated as card-not-present transactions because the physical card is not verified. They carry higher interchange rates and greater fraud risk than card-present transactions.
Related: Card Not Present (CNP), Virtual Terminal, Interchange
Enhanced transaction data submitted with business-to-business and government card payments. Level 2 data includes tax amount and customer code. Level 3 data adds line-item detail such as item description, quantity, and unit price. Providing Level 2 or Level 3 data on qualifying commercial card transactions can reduce interchange rates, lowering processing costs for B2B merchants.
Related: Interchange, MCC
A four-digit code assigned by card networks to classify a merchant's primary business type. MCCs affect interchange rates, card rewards eligibility, and underwriting risk assessments. Some MCCs are considered higher-risk and may limit processor options.
Related: Interchange, Underwriting
A pricing model where merchants pay a monthly subscription fee in exchange for wholesale interchange rates plus a small per-transaction fee. Often called subscription pricing, it can reduce overall processing costs for businesses processing $50,000 or more per month.
Related: Interchange Plus Pricing, Flat Rate Pricing, Effective Rate
A type of bank account that allows a business to accept credit and debit card payments. Funds from card transactions are deposited into the merchant account before being transferred to the business's bank account. Some modern processors use aggregated merchant accounts (shared accounts) rather than dedicated individual accounts.
Related: Payment Processor, Reserve
The name, phone number, or URL that appears on a customer's bank or credit card statement to identify a transaction. A clear, recognizable descriptor helps customers identify purchases and reduces chargebacks initiated because the customer doesn't recognize the charge. Soft descriptors (set per transaction) and hard descriptors (set at the account level) may be configured differently by each processor.
Related: Chargeback, Payment Processor
A fee charged by some processors if a merchant's monthly processing fees fall below a set threshold. For example, if a processor has a $25 monthly minimum and the merchant's processing fees only total $10, the merchant pays an additional $15 to meet the minimum. This fee effectively ensures the processor earns a minimum revenue regardless of the merchant's transaction volume.
Related: Effective Rate, Discount Rate
The ability to accept card payments using a smartphone or tablet, typically with a portable card reader that connects via Bluetooth, audio jack, or USB-C. Mobile processing is popular for food vendors, service businesses, event staff, and any merchant who accepts payments away from a fixed register. Tap-to-pay NFC acceptance is increasingly supported on mobile devices directly.
Related: Contactless Payment (NFC / Tap to Pay), Card Present, POS System
A deposit schedule where funds from processed and settled transactions are deposited into the merchant's bank account on the next business day after settlement. Some processors offer same-day or instant payout options, often at an additional fee. Funding timing affects cash flow and varies by processor, plan, and bank.
Related: Batch Settlement, Settlement, Merchant Account
A feature in some POS systems and terminals that allows the device to accept and store card transactions locally when internet connectivity is unavailable. Transactions are held in a queue and submitted to the processor when connectivity is restored. Critical for food trucks, outdoor markets, event vendors, and any business operating in locations with unreliable connectivity. Offline mode typically involves some fraud risk because transactions cannot be authorized in real time.
Related: POS System, Authorization, Batch Settlement
A company that processes payments on behalf of multiple sub-merchants under its own master merchant account. PayFacs handle underwriting and onboarding for their sub-merchants, enabling faster signup than traditional merchant accounts. Square, Stripe, and PayPal are well-known PayFacs. The trade-off is that PayFacs may have less underwriting flexibility for complex or higher-risk business types.
Related: Merchant Account, Underwriting, Payment Processor
Software that securely transmits payment data from a checkout form or point-of-sale terminal to the payment processor. Gateways handle encryption, fraud screening, and authorization communication. Some processors bundle gateway services; others require a separate gateway provider.
Related: Payment Processor, Merchant Account
A company that handles the technical and financial steps required to complete a payment transaction between a customer's bank and a merchant's bank. Processors authorize transactions, facilitate fund transfers, and manage settlement. Examples include Stripe, Square, and Adyen.
Related: Payment Gateway, Merchant Account
Payment Card Industry Data Security Standard. A set of security requirements established by Visa, Mastercard, Discover, and American Express that any business handling cardholder data must meet. PCI compliance is not optional — all merchants are required to comply at a level appropriate for their transaction volume and processing method. Many processors charge a PCI compliance fee or non-compliance fee, and require merchants to complete an annual self-assessment questionnaire.
Related: Hosted Payment Page, Tokenization, Merchant Account
Hardware and software used to complete in-person sales transactions. A POS system typically combines a card terminal, receipt printer, cash drawer, and management software for sales tracking, inventory, and reporting. Some payment processors offer proprietary POS systems; others are hardware-agnostic.
Related: Card Present, Payment Processor
The total dollar amount of card transactions a merchant processes over a given period, typically measured monthly or annually. Processing volume is a key factor in processor pricing (higher volume may qualify for lower rates), underwriting decisions, and the break-even calculation for membership or subscription pricing models.
Related: Effective Rate, Membership Pricing, Underwriting
The automatic charging of a customer's payment method on a set schedule — weekly, monthly, or annually — without requiring the customer to re-enter card details each time. Requires a payment processor or gateway that supports tokenization and subscription management. Common for SaaS businesses, membership organizations, and subscription services.
Related: Tokenization, Payment Gateway, Membership Pricing
A credit from a merchant to a customer's card, reversing a previous transaction. Refunds typically appear on the customer's statement within 3–10 business days. Refunds are different from voids (which cancel transactions before settlement) and chargebacks (which are initiated by the customer's bank rather than the merchant).
Related: Void, Chargeback
A portion of a merchant's processing funds held by the processor as a financial buffer against chargebacks and losses. Reserves may be rolling (a percentage of each batch held for a period), capped (held until a fixed amount is reached), or upfront. Higher-risk merchants are more likely to face reserve requirements.
Related: Chargeback, Underwriting, Merchant Account
A specific type of reserve where a percentage of each transaction batch is withheld by the processor for a defined holding period — for example, 10% of each batch held for 180 days. After the holding period, the withheld funds are released to the merchant on a rolling basis. Rolling reserves are common for higher-risk accounts and new merchants in certain industries.
Related: Reserve, Chargeback, Underwriting
The final transfer of funds from completed, batched transactions to the merchant's bank account. After transactions are authorized and captured, they are submitted in a batch for settlement, which initiates the movement of funds through the card network and acquiring bank to the merchant account. Settlement is typically followed by funding (deposit to the merchant's primary bank) 1–2 business days later.
Related: Batch Settlement, Next-Day Funding, Merchant Account
A transaction where a customer pays using more than one payment method — for example, part credit card and part cash, or two separate cards. Not all POS systems or payment processors support split tender natively. If your business regularly handles split payments, verify that the processor and POS system you select support this feature.
Related: POS System, Card Present
The practice of adding a fee to a customer's transaction when they pay with a credit card, to offset the merchant's card processing costs. Surcharging is regulated by card network rules and is prohibited in some US states. Card-network rules do not permit surcharges on debit or prepaid debit transactions, including when a debit card is processed without PIN entry. Merchants who want to surcharge must follow specific requirements — including prior registration with card networks and clear customer disclosure. Rules and permissibility vary; verify current requirements before implementing.
Related: Cash Discount Program, Interchange, Effective Rate
The process of replacing sensitive card data — such as the primary account number — with a non-sensitive placeholder called a token. Tokens can be stored safely by the merchant or processor and used for recurring billing, stored-card transactions, and reducing PCI compliance scope. The original card data is stored securely by the processor; the merchant only ever sees the token.
Related: PCI DSS, Recurring Billing, Payment Gateway
The process by which a payment processor evaluates a merchant's risk profile before approving a merchant account. Underwriting reviews business type, processing history, financials, and potential chargeback risk. Some processors use automated underwriting; others conduct manual review for higher-complexity businesses.
Related: Reserve, MCC, Merchant Account
A web-based interface that allows a merchant to manually enter card details and process card-not-present transactions from any device with a browser and internet connection. Virtual terminals are used for phone orders, mail orders, and remote invoicing when the customer is not present to swipe, dip, or tap. Transactions processed through a virtual terminal are treated as keyed-in (card-not-present) and carry higher interchange rates.
Related: Keyed-In Transaction, Card Not Present (CNP), Payment Gateway
The cancellation of an authorized transaction before it has been included in a settled batch. If a transaction is voided before the batch settles, the authorization hold on the customer's account is released and no processing fees are charged. After a batch has been settled, a refund must be issued instead — the transaction can no longer be voided.
Related: Refund, Batch Settlement, Authorization
A small per-transaction fee charged when Address Verification Service (AVS) is used to compare the cardholder's billing address with the address on file at the issuing bank. AVS is commonly used on card-not-present transactions to reduce fraud risk. The AVS check itself does not guarantee a card is legitimate — it only indicates whether the address data matched. Some processors bundle AVS fees into the transaction fee; others list them separately.
Related: Card Not Present (CNP), Authorization, Payment Gateway
A fee charged by some processors each time a merchant closes a batch — submitting the day's authorized transactions for final settlement. Not all processors charge batch fees; those that do may charge per batch regardless of the number of transactions in it. Merchants who settle multiple times per day would pay the batch fee multiple times. Ask your processor whether a batch fee applies and how often batches are settled.
Related: Batch Settlement, Settlement, Effective Rate
A fee charged by the processor each time a customer successfully initiates a chargeback — a forced reversal of a transaction through the issuing bank. The chargeback fee is separate from the reversed transaction amount (which is also debited from the merchant's account). Fee amounts vary by processor and are not refunded even if the merchant wins the dispute. Elevated chargeback rates can trigger risk reviews, reserve requirements, or account termination.
Related: Chargeback, Reserve, Retrieval Fee
Dual pricing is a pricing practice where a merchant displays separate cash and card prices before the customer chooses a payment method. The card price is higher to reflect processing costs.
Related: Surcharging, Cash Discount Program, Interchange
A fee charged when a merchant closes a processing account before the end of a contract term. ETFs vary widely — some processors charge a flat fee; others charge based on the remaining contract period or anticipated monthly fees. Some providers (including many flat-rate providers) do not charge early termination fees. Always ask about ETF amount and contract term before signing, and get it in writing. ETFs apply to the account contract, but gateway agreements or equipment leases may have separate cancellation fees.
Related: Merchant Account, Minimum Monthly Fee, Effective Rate
A monthly fee for access to a payment gateway — the software that routes card transactions from a checkout form or terminal to the processor for authorization. Some processors include gateway access at no additional charge; others charge a separate monthly fee (ranging from a few dollars to $25+) and sometimes an additional per-transaction gateway fee. For online-heavy merchants, the gateway fee can be a meaningful component of total monthly processing cost. Verify whether your processor includes gateway access or requires a separate provider.
Related: Payment Gateway, Effective Rate, PCI DSS
The portion of processing fees retained by your payment processor above the cost of interchange and assessment fees. Under interchange-plus pricing, the markup is disclosed separately (e.g., interchange + 0.25% + $0.10). Under flat-rate pricing, the markup is bundled into a single rate. Under membership pricing, the per-transaction markup is replaced by a monthly membership fee. Processor markup is the negotiable portion of processing costs — interchange and assessment fees are set by card networks and non-negotiable.
Related: Interchange Plus Pricing, Effective Rate, Interchange
The highest-cost tier in a tiered pricing structure, applied to transactions that do not meet the processor's 'qualified' or 'mid-qualified' criteria. Common non-qualified triggers include premium rewards cards, corporate and business cards, government cards, card-not-present transactions, manually keyed entries, and transactions not batched within the required settlement window. On tiered pricing statements, the non-qualified rate can significantly raise a merchant's effective rate if a large portion of volume lands in this bucket.
Related: Tiered Pricing, Qualified Rate, Effective Rate
A monthly or annual fee charged by some processors for maintaining PCI DSS (Payment Card Industry Data Security Standard) compliance status. This fee may include access to a compliance portal, an annual security questionnaire tool, or compliance monitoring services. Separately, processors may charge a PCI non-compliance fee — typically higher — when a merchant has not completed their required annual PCI self-assessment questionnaire. Always complete the annual PCI assessment to avoid the non-compliance surcharge.
Related: PCI DSS, Effective Rate, Gateway Fee
The lowest per-transaction rate in a tiered pricing structure, applied to transactions that meet the processor's 'qualified' criteria. Qualified transactions typically include standard credit or debit cards processed in person via chip or swipe in a straightforward transaction. The exact definition of 'qualified' is set by each processor and is not standardized across the industry. Because many common card types — rewards cards, corporate cards, manually keyed entries — may not qualify, the percentage of volume actually processed at the qualified rate can be lower than merchants expect.
Related: Tiered Pricing, Non-Qualified Rate, Effective Rate
A fee charged when a card issuer submits a retrieval request — a formal request for transaction documentation, typically a copy of the sales receipt. Retrieval requests are often the first step in the chargeback process, issued when a cardholder questions a transaction. Responding promptly and completely to retrieval requests can sometimes prevent a retrieval from escalating to a full chargeback. Not all processors charge retrieval fees; amounts vary.
Related: Chargeback Fee, Chargeback, Merchant Account
A monthly fee charged by some processors for producing and delivering a merchant processing statement. Statement fees typically range from a few dollars to $10 per month. Some processors waive the statement fee for merchants who opt for paperless (electronic) statements. Like other fixed monthly fees, statement fees are included in your effective rate calculation and can disproportionately affect low-volume merchants.
Related: Effective Rate, Minimum Monthly Fee, Gateway Fee
A pricing model that groups transactions into two or three buckets — typically qualified, mid-qualified, and non-qualified — with a different rate applied to each tier. The processor determines which transactions fall into which tier based on card type, transaction method, and other criteria they set. Tiered pricing is common in traditional merchant services contracts and is generally considered less transparent than interchange-plus because the tiering criteria are not published by card networks and can vary across processors. Many merchants find their effective rate under tiered pricing is higher than the advertised qualified rate.
Related: Qualified Rate, Non-Qualified Rate, Interchange Plus Pricing
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